The Weakness is Really Different Now

By Jeffrey Snider of Alhambra

We cannot, however, allow “them” to rewrite QE’s history and that of the Federal Reserve and its global cohort

If there is any wonder why PMI’s deserve scorn, this morning’s twin bill delivered solid reasoning. Both the ISM Manufacturing Index and the Markit Manufacturing PMI declined, and both remained above 50. However, there was no real consensus about what any of it meant. Depending on the media outlet determining commentary about either, there was both positive and negative spin on each. Further, the internals of each survey showed quite divergent views in important subcomponents.

Starting with the ISM, the overall index fell back to just 50.8 after jumping to 51.8 in March. Some saw that as disappointing in that the hoped-for rebound after the year’s disastrous start fizzled so quickly, or at least did not continue to advance.

Although readings over 50% indicate more companies are expanding instead of shrinking, manufacturers are clearly struggling to grow. The ISM index has hovered between 48% and 52% since last summer.

The sluggish ISM reading for April also suggests that scattered evidence recently of improvement among manufacturers is probably a mirage.

Others saw it as confirmation that the worst was over even if the manner of the rebound is a bit too uneven for comfort.

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Yes, Trauma

By Jeffrey Snider of Alhambra

The issue isn’t about debating how good it [the economy] might be right now, it is coming to terms with the fact that it was never anything but bad all along

Economists will not remove themselves from seeing the economy as it “should be” rather than take it for what it is (and what that actually means). They have latched their narrative to the idea that it is you who has the perception problem no matter how isolated the “recovery” becomes. There never was much indication for a decent recovery all these years let alone one that is in imminent danger of “overheating.” On that score, there were only a few points in favor and they were the most derivative and indirect:

By most measures, the economy is doing great. The US labor market is creating around 200,000 jobs a month, which has brought the unemployment rate tumbling to 5%. Meanwhile, home prices are up and stock prices (GSPC) are near all-time highs.

If that is all there is to indicate the mainstream version of the economy, we really are in serious trouble. The major payroll statistics are increasingly detached from even orthodox measures of broader data on the labor market. There is also the massive inconsistency of global trade collapse and the US manufacturing recession that are mutually exclusive to the idea of 200,000 jobs a month. Home prices are up, but the overall real estate condition is conspicuously odd and actually suggests major economic problems. Stock prices might be near record highs now, but they have been that way for almost two years with increasing volatility; sideways suggests only swelling, broad-based caution about fundamental prospects, not evidence of Janet Yellen’s vision.

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Slowdown Continues; Lost Time Accumulates

By Jeffrey Snider of Alhambra

The US trade estimates for February suggest only that the global economy remains in this slowdown phase

US trade statistics for February improved in both exports and imports, but there are questions as to the reason for the reverse and whether it is actually meaningful. After abysmal performance in every segment and category in January, there was some give back in February including positive numbers in some places. That suggests that January’s trade activity might have been suppressed (financing issues?) and shifted somewhat into the following month (and then the 29th day may have added something further).

US imports from China, for example, rose 15.8% in February year-over-year after contracting for the four months prior. This variation, with sudden surges out of nowhere spread between very low or contracting months, has been the dominant feature of the past year and a half. Despite what seems like a very good number for February, the 6-month average remains barely positive at +1.1% because that +15.8% only replaces +10.8% from August (the last time there was a similar “good” month) in the moving average. The net result is the usual mainstream proclamations that the corner has been turned while Chinese industry is still stuck between capacity built for sustained +25% to +30% US import growth and the actual import level that remains at or even below zero if highly irregular in achieving it.

ABOOK Apr 2016 ExIm Imports China, us economy

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Wage Inflation is Already Here

By Michael Ashton

Wage Growth Tracker – Wage Inflation is Already here

(**Administrative Note: Get your copy of my new book What’s Wrong with Money: The Biggest Bubble of All! Here is the Amazon link. readers: be sure to check out Bruce Stratton’s recent announcement, which also has a link to a special deal for SafeHaven readers).

I am often critical of central banks these days, and especially the Federal Reserve. But that doesn’t mean I think the entire institution is worthless. While quite often the staff at the Fed puts out papers that use convoluted and inscrutable mathematics to “prove” something that only works because the assumptions used are garbage, there are also occasionally good bits of work that come out. While it is uneven, I find that the Atlanta Fed’s “macroblog” often has good content, and occasionally has a terrific insight.

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The (non) Appeal of More Debt

By Jeffrey Snider of Alhambra

While continuing to tout an economic recovery that is being missed by far too many, the government and economists say one thing and then move toward the other. The unemployment rate claims one economic version that is talked about openly, but then there are “little things” that various official capacities seek to carry out suggesting they realize full well the discrepancy. The most obvious is the FOMC’s reluctance to do much more than talk about rate hikes.

In the US, there hasn’t been the same growing favor to revisit fiscal “stimulus” as elsewhere but that isn’t to say there isn’t any activity.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

On the surface, it seems as banking had gone from being too far forward during the housing bubble and lending skewed way too much toward NINJA to now the opposite in being far too strict. Governments, as always, want it both ways as if it could possibly divine the difference – to have quite robust lending but without any tomfoolery. To move the pendulum back, part of this new push is being undertaken by the Justice Department, as if the law bureau fits within what is clearly “clogged transmission” of monetary policy. The reason for that is certainly a relic from the housing bust, as the Obama Administration is using Justice as a platform to assure banks that there would be no legal repercussions if another housing bust came around again. It’s not quite a “get out of bubble free” card, but perhaps as close as there will ever be offered.

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What Can We Learn From Economically Sensitive ETFs?

By Chris Ciovacco

Cyclicals Have Lost Their Confident Look

We can learn a lot from the chart below, which shows the performance of economically-sensitive stocks relative to the S&P 500. After the S&P 500 bottomed on February 11, cyclicals (XLY) took the lead off the low as economic confidence started to improve. Notice the steep slope of the ratio off the recent low (see green text). The confident look has morphed into a more concerning look as the S&P 500 has continued to rise over the last month (orange text), which tells us to keep an open mind about a pullback in the stock market.

xly vs. spy, stock market indicator

A similar picture emerges when we examine the high beta stocks (SPHB) to S&P 500 ratio below.

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Bi-Weekly Economic Review

By Joseph Calhoun of Alhambra

Economic Reports Scorecard

scorecard 4-1-16

The economic reports since the last update present a dichotomy. While there has been an improvement in the surprises – more better than expected reports – the overall tone of the reports has been fairly negative. Part of the explanation for that is the plethora of regional Fed reports over the last two weeks, almost all of which showed significant improvement. That contrasts somewhat with the real manufacturing data we received. The Durable Goods report in particular was quite weak, down 2.8% – and better than the -3% expectation. Ex-transportation orders were down 1% and core capital goods orders were down 1.8% (but down just 0.1% year over year).

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Payrolls as Statistics

By Jeffrey Snider of Alhambra

According to Challenger, Gray & Christmas, layoffs in the US were up 32% in March 2016 over March 2015. Compared to both January and February this year, March was somewhat better but overall for Q1 published layoffs were also 32% more on a year-over-year basis. It wasn’t a very good quarter. Some of that is expected given the death of “transitory” as an effect on oil production which can no longer deny reality. While it is easy to chalk up this potential economic setback to that particular sector, there is much more going on:

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